Arbitration India - Perspectives

Wednesday, 10 October 2012

The inaugural edition of the Indian Journal of Arbitration Law (IJAL)had been recently launched on Thursday, September 27, 2012.

The IJAL is proposed to be a biannual peer reviewed student run journal, under the aegis of the Centre for Advanced Research & Training in Arbitration Law (CARTAL) of National Law University, Jodhpur. The mission of IJAL is to provide timely information, both practical and academic, on developments in the field of arbitration.

Sunday, 30 September 2012

We conclude our analysis of the decision of the Supreme Court in the BALCO decision.The Supreme
Court in Bharat Aluminium Co. V. Kaiser Aluminium Technical Services Inc.thus
laid to rest the maladies which arose from the Bhatia and Satyam decisions.

13. The
maintainability of an action for interim relief outside the A&C Act, 1996As the Supreme Court interpreted
that Part I of the A&C Act 1996 would only apply if the seatof arbitration
was in India, the same basically deprives parties to such arbitrations from
obtaining interim relief in respect of assets located in India.[1]
Therefore an additional issue was framed before the Supreme Court, viz, whether
a suit for interim relief would be maintainable under any other law in India
even if S. 9 of the A&C Act, 1996 was unavailable to the parties.The Supreme Court examined the Code
of Civil Procedure, 1908 which contains provisions relating to suits and
applications for interim relief.

Order XXXIX and XL of Code of
Civil Procedure, 1908 which relate to interim relief require the existence of a
suit as a necessary condition. S. 9 of the Code of Civil Procedure provides
that:

The Courts shall (subject to the provisions herein contained) have
jurisdiction to try all suits of a civil nature excepting suits of which their
cognizance is either expressly or impliedly barred.

The Supreme Court did not deal with
the express bar which can be found in S. 5 of the A&C Act, 1996 which reads
as under:

Notwithstanding anything contained in any other law for the time being
in force, in matters governed by this Part, no judicial authority shall
intervene except where so provided in this Part.

Thus the
Supreme Court could have held that there could be no suit brought before Indian
Courts for interim relief in the case of an arbitration seated outside India as
the same was barred by S. 5 of the A&C Act, 1996. The Supreme Court however
did not express this view.

Instead the
Supreme Court found that the pendency of an arbitration proceeding would bar
the courts from taking cognizance of a suit based on the same disputes in view
of S. 8 or S. 45 of the A&C Act, 1996. This in turn would mean that as no
suit could be brought in this regard, no application for interim relief could
be found to be maintainable.

The Supreme
Court further held that for any suit to be maintainable (and thus any request
for interim relief) there has to be a cause of action. Pendency of arbitral
proceedings outside India was found not to constitute a sufficient cause of
action. The Supreme Court further held that interim relief is to be sought as a
part of the substantive relief.[2]
Where the substantive relief is within the jurisdiction of the arbitral
tribunal, no substantive relief concerning the merits of the arbitration can be
claimed in court and therefore no interim relief can in turn be claimed.

The Supreme
Court also considered other laws in India such as the Specific Relief Act, 1963
and found that on similar grounds no interim relief could be sought in relation
to an arbitration seated outside India.

The Supreme
Court then examined the law in this regard in England. In Siskina (Cargo owners) v. Distos Compania Navieria SA[3]
the House of Lords heldA right to obtain an interlocutory
injunction is not a cause of action. It cannot stand on its own.It is dependent upon there being a
pre-existing cause of action against the defendant arising out of an invasion,
actual or threatened by him, of a legal or equitable right of the plaintiff for
the enforcement of which the defendant is amenable to the jurisdiction of the
Court.

The above
decision still holds good in India although in England the law was subsequently
modified in this regard by amendments to the Supreme Court Act, 1981. This in
turn permitted the English Courts in Channel
Turner Group Ltd. v. Balfour Beatty Construction Ltd.[4]
to grant interim relief in relation to proceedings that have or are likely to
commence in a foreign state. The Supreme Court of India observed that no such
power having been granted by the Indian Legislature, no such interim relief
could be granted in relation to arbitration proceedings taking place outside
India.

The Supreme
Court thus effectively shut the door on any request for interim relief in
relation to assets located in India in the case of an arbitration with its
situs outside India. While several commentators may criticize the consequences
of such a decision, one cannot lose sight of the fact that a purposive
interpretation cannot put the Court in the shoes of the Legislature. It would
be best to leave the task of remedying this defect to the Legislature. The
simplest way to achieve the same would be to provide the same exceptions to S.
2(2) of the A&C Act, 1996 as provided to A. 1(2) of the Model Law.

Conclusion

Effectively the Supreme Court in the decision under review has
removed all the evils created by over enthusiastic interpretations of the law
in Bhatia and Satyam decisions. It has reiterated the strict territorial
criterion of the A&C Act, 1996 calling the law as seat centric and thereby
completely restricting the applicability of Part I of the Act to arbitrations
taking place in India only. Effectively it means that in an arbitration with
its seat outside India, no provision under Part I of the Act of 1996 is
available to either of the parties to the arbitration. This bars any court in
India to entertain and try requests for interim relief or for setting aside
awards pursuant to arbitrations with seat outside India.

Interestingly the Supreme Court has made its decision prospective in
nature[5],
i.e. applicable to arbitration agreements entered into post the date of its
decision. The Supreme Court felt that the decisions in Bhatia and Satyam cases having
been followed over the years, several arbitration agreements would have been
entered with the position of law laid down therein having been accepted as the
correct one. To safeguard parties to such arbitration agreements the Supreme
Court made its decision prospective.

This creates two parallel regimes of law, one prior to 6th
September 2012 and one thereafter which is likely to cause a headache or two
for lower courts. Further this permits the problems of Bhatia and Satyam to
continue unabated with respect to arbitration agreements entered into prior to
the decision under review. (This despite a dispute not having arisen in
relation to the arbitration agreement.)[6]
However one must remember parties are free to novate or substitute their
arbitration agreements which would be advisable considering the prospective
nature of this decision.

With
that we conclude our analysis of the decision. In the coming few weeks we will
deal with an interesting scenario wherein the parties have chosen a location
outside India as the seat/venue of arbitration and have made the A&C Act,
1996 or more specifically Part I thereof as the procedural law applicable. Will
this create a difficulty or two? Until then...

[6]Take the case of an
arbitration agreement entered into prior to the decision under review. No
dispute arises in relation thereto until ten years later. The decision under
review will not be applicable but the position of law as laid down in Bhatia decision would apply. This seems
farcical. It would have been better to make the ratio applicable to arbitration
agreements entered into even prior to the date of the decision but in respect
of which no arbitration proceedings or legal proceedings have commenced.

Saturday, 22 September 2012

S. 28 of the
A&C Act, 1996 which deals with the applicable substantive law in an
arbitration under Part I of the A&C Act, 1996 reads as under:

Rules applicable to substance of dispute

Where the place of arbitration is situate in
India...

It was submitted
that S. 28 which falls in Part I of the A&C Act, 1996 opens with the words where the place of arbitration is situate in
India. It was submitted that there would be no requirement of reiterating
this fact if S. 2(2) were interpreted to mean that Part I applied to
arbitrations taking place in India only. It was thus submitted that the
presence of these words in S. 28, and conversely the absence of the same in
other provisions in Part I, indicated that Part I in fact applied to all
arbitrations irrespective of the situs.

The argument
though attractive fails to see the reason behind the necessity of reiterating
the words where the place of arbitration
is situate in India in S. 28. The said provision deals with substantive law
applicable to a dispute in an arbitration. Where both parties to an arbitration
agreement are Indian, the substantive law applicable would necessarily have to
be India. However where one or more parties are non-Indian, the parties would
be free to decide the law applicable to the substance of the dispute. The
presence of the words where the place of
arbitration is situate in India is necessary to give effect to the latter
scenario, i.e. possibility of an international commercial arbitration (where at
least one party is non-Indian) taking place in India. The Supreme Court thus
held that the provision could not be interpreted to be indicative of the intent
of the Legislature to give an extra-territorial effect to Part I of the A&C
Act, 1996.[1]

8. Operation
and scope of Part I and Part II

It was suggested
before the Supreme Court that Part I and Part II are overlapping in nature and
this reinforces the extra territorial applicability of the A&C Act, 1996.

The Supreme
Court held that the two parts are mutually exclusive. The Supreme Court
observed that regulation of arbitration consists of four steps (a) the commencement
of arbitration; (b) the conduct of arbitration; (c) the challenge
to the award; and (d) the recognition or enforcement of the award.
Part I of the Arbitration Act, 1996 regulates arbitrations at all the four
stages.Part II, however,regulates
arbitration only in respect of commencement and recognition or enforcement of
foreign awards.[2]The Supreme Court further held that the regulation of conductof arbitration and
challenge to an award is to be done by the courts of the country in which the
arbitration is being conducted.[3]
This in turn means that Part I of the A&C Act, 1996 which regulates the
conduct of arbitration would only be applicable to arbitrations with situs in
India.

It was also
submitted that the use of the non-obstante clause “Notwithstanding anything contained in Part I or the Code of Civil
Procedure, 1908...” in S. 45 (which falls in Part II) indicated that
provisions of Part II were designed to apply to arbitrations to which Part I
applied unless expressly barred. The Supreme Court observed that the
non-obstante clause was a legislative tool used in the Foreign Awards (Recognition
and Enforcement) Act, 1961 which had been repeated. Further the Supreme Court
held that the non-obstante clause was added out of abundant caution[4]
and as such reinforced the stark division of the two Parts.

9. The
use of the words judicial authority

It was submitted
that the words judicial authority in
S. 45 (which falls in Part II) referred to a term wider than courts as the Part
II related to foreign awards. The submission was extended to state that the use
of the same words judicial authority in
various provisions in Part I as opposed to the use of the word court indicated that Part I was also
applicable extra-territorially.

The Supreme
Court found that no such interpretation could be drawn. Rather it opined that
the words judicial authority had been
used in various provisions to cover any form of adjudicating body so as to
minimize intervention[5]
in the arbitral process. It further found that the term could be a legislative
hangover from the Arbitration Act, 1940.

10. Courts
having jurisdiction to set aside awards

S. 48(1)(e),
which falls in Part II of the A&C Act, 1996 deals with grounds for refusal
of enforcement of a foreign award made in a Convention country. The same is
identical to A. V(1)(e) of the New York Convention and reads as under:

(1) Enforcement
of a foreign award may be refused, at the request of the party against whom it
is invoked, only if that party furnishes to the court proof that----

...

(e) the award has not yet become binding on
the parties, or has been set aside or suspended by a competent authority of the
country in which, or under the law of which, that award was made.

It was submitted
that the said provision recognized that two courts had concurrent jurisdiction
to set aside an award, i.e. the courts of the country where the award was made
and courts of the country under the law of which the award was made. It was thus
submitted that Indian Courts could set aside awards made outside India but
subject to Indian Law. As a result it was submitted that S. 34 which falls in
Part I and relates to grounds for setting aside of an award would apply to
awards resulting from all arbitrations, including which were seated outside
India. It was thus submitted that the Satyam
decision was correct and that S. 34 and also other provisions of Part I
were applicable extra-territorially.

The Supreme
Court recognized that the New York Convention was indeed suggestive of two
courts which could be competent to set aside the award. However the same could
not be extended to mean that therefore under S. 34 of the A&C Act, 1996
foreign awards could be set aside. To interpret so would amount to legislation
by the Court. Jurisdiction if any had to be given expressly by the Legislature.[6]
In the absence of the same S. 34 could not be applied to set aside foreign
awards. In expressing so the Supreme Court overruled the Satyam decision.

The Supreme
Court then digressed from the main contention and clarified that in any event A.
V(1)(e) could not be read to mean that the two courts would have concurrent
jurisdiction to set aside the award. Rather the primary court would be the
court of the country where the award was made. The secondary court would be the
court of the country under the law of which the award was made.[7]
The Supreme Court held that to give concurrent jurisdiction would lead to
complex situations as arose in the Satyam
decision.[8] The
Supreme Court also opined on the term under
the law of which and held that the same referred to procedural law.[9]
The Court examined various international authorities and case law on these
aspects[10]
and went on to warn that to understand the term to mean substantive law would be to ignore the spirit underlying the New
York Convention which embodies a consensus evolved to encourage consensual
resolution of complicated, intricate and in many cases very sensitive
International Commercial Disputes.[11]

11. Lacuna
in respect of arbitrations in Non-Convention countries

It was canvassed
that if Part I was found applicable only to arbitrations seated in India and
Part II was found applicable only to arbitrations in Convention countries, the
same would create a lacuna in the law as arbitrations in Non-Convention
countries would not be regulated by the A&C Act, 1996.

The Supreme
Court rejected the submission on the ground that arbitrations in Non-Convention
countries were never governed by Indian laws whether under the older regime of
law or under the A&C Act, 1996. Therefore there was no lacuna.

In our opinion
the submission is fundamentally flawed as the A&C Act, 1996 does not even
apply to arbitrations in Convention countries which have no reciprocity
provisions towards arbitrations in India.[12]
This indicates a far narrower scope of Indian law over foreign awards and
cannot be termed as a lacuna but rather a legislative intent. The Supreme
Court’s decision in rejecting the submission thus stands good.

12.Hardship
due to non-availability of S. 9 interim relief in arbitrations seated abroad

As the Supreme
Court had dismissed all submissions which had earlier found favour in the Bhatia and Satyam decision, a last gasp submission was made. It was contended
that if Part I were found to be applicable only to arbitrations with seat in
India, then in an arbitration with its seat outside India, a party would be
left remediless in respect of assets located in India as S. 9, which falls in
Part I, would no longer be available. To prevent such lack of remedy it was
submitted that S. 9 should be permitted to be applied irrespective of where the
arbitration is held. It was submitted that such an interpretation would
actually result in an intra-territorial operation of S. 9 as the assets would
be located within India and not an extra-territorial operation in terms of an
arbitration situated abroad.

The Supreme
Court disagreed and held that S. 9 could not be construed as a stand-alone
provision. It held that schematically the provision was placed in Part I and
referred to the courts’ powers in granting relief before or during arbitral
proceedings or at any time after making of the arbitral award but before it is
enforced in accordance with S. 36. [13]
The Supreme Court held that S. 36 also was found in Part I and hence S. 9 had
to be construed as part and parcel of Part I. The Supreme Court held that
extending the applicability of S. 9 to arbitrations which take place outside
India would be to do violence to the policy of territoriality declared in S.
2(2) of the A&C Act, 1996.[14]

The Supreme
Court then held

Once the parties have chosen voluntarily
that the seat of the arbitration shall be outside India, they are impliedly
also understood to have chosen the necessary incidents and consequences of such
choice. We, therefore, do not find any substance in the submissions made by the
learned counsel for the appellants, that if applicability of Part I is limited
to arbitrations which take place in India, it would leave many parties
remediless. If that be so, it is a matter to be redressed by the legislature.[15]

The Supreme Court
went on to explain that in the Bhatia
decision it had erroneously attempted to act as “finishers”, “refiners” and
“polishers” of the Arbitration Act, 1996 assuming that the Arbitration Act,
1996 required varied degrees of further “processing”[16]
as the task of filling up lacuna if any was that of the Legislature.

The Supreme Court thus rejected
all submissions made towards upholding the position of law as decided in the Bhatia and Satyam decisions. It held in its conclusion:

We are unable to accept the submission of the learned counsel for the
appellants that the Arbitration Act1996 does not
make seat of the arbitration as the centre
of gravity of the arbitration.[17]

The A&C Act 1996 has accepted the territoriality principle
which has been adopted in the UNCITRAL Model Law. Section 2(2) makes a
declaration that Part I of the Arbitration Act, 1996 shall apply to all
arbitrations which take place within India. We are of the considered opinion
that Part I of the Arbitration Act, 1996 would have no application to
International Commercial Arbitration held outside India. Therefore, such awards
would only be subject to the jurisdiction of the Indian courts when the same
are sought to be enforced in India in accordance with the provisions contained
in Part II of the Arbitration Act, 1996. In our opinion, the provisions
contained in Arbitration Act, 1996 make it crystal clear that there can be no
overlapping or intermingling of the provisions contained in Part I with the
provisions contained in Part II of the Arbitration Act, 1996.[18]

With utmost respect, we are unable to agree with the conclusions
recorded in the judgments of this Court in Bhatia International (supra) and Venture Global Engineering (supra)....In a foreign seated
international commercial arbitration, no application for interim relief would
be maintainable under Section 9 or any other provision, as applicability of
Part I of the Arbitration Act, 1996 is limited to all arbitrations which take
place in India.[19]

We
conclude that Part I of the Arbitration Act, 1996 is applicable only to all the arbitrationswhich take place within the territory of India.[20]

Tuesday, 18 September 2012

We continue our post on the decision of the Supreme Court in Bharat Aluminium Co. v. Kaiser Aluminium Technical Services Inc. with a partial analysis of the decision.

Analysis

The Supreme Court in arriving at
its decision dealt with various arguments which had earlier found favour in the
Bhatiaand the Satyam decisions. We will deal with each point of reasoning herein
below.

1. Submission
on S. 1(2) and its Proviso

S. 1(2) of the
A&C Act 1996 provides as under

It (The A&C Act, 1996) extends to the whole of India

Provided Parts I, III and IV shall extend to
the State of Jammu and Kashmir only in so far as they relate to international
commercial arbitration...

It had been
submitted that if Part I of the Act of 1996 were interpreted to apply to only
arbitrations taking place in India, the same would create an anomaly as S. 1(2)
proviso declares that Part I would be applicable to the State of Jammu and
Kashmir [1]
even in relation to arbitrations taking place outside India. This argument had
found favour in the Bhatia case.

The Supreme
Court dismissed the argument in the case under review and found that there was
no anomaly created as S. 2(2) which made Part I applicable to arbitrations
seated in India could not be read subject to the proviso to S. 1(2).

We find
ourselves in agreement with the same although the decision doesn’t carry the
entire reasoning and thought which culminated in this result. Thus we indulge
in delving into the same.

Firstly, the
scope and operation of S. 1(2) and S. 2(2) are entirely different. While
section 1(2) is the general clause stating the extent of applicability of the
Act, section 2(2) is the specific clause stating the condition of applicability
of Part I of the Act. Thus, if section 2(2) is not satisfied, section 1(2) and
its exception, though still operational, have no effect. Secondly the reason
behind the proviso to S. 1(2) is simplistic. The State of Jammu and Kashmir in
India has a special position on account of historical and political reasons.[2]
If one looks at the Arbitration Act, 1940 which dealt with arbitrations taking
place in India, the same was not applicable to Jammu and Kashmir. However both
the Protocol and Convention Act, 1937 and the Foreign Awards (Recognition and
Enforcement) Act, 1961 which dealt with enforcement of Convention awards were
applicable to Jammu and Kashmir. The proviso thus retains this position and
nothing more should be read into it. Thirdly the proviso states that Part I
will be applicable to Jammu and Kashmir in relation to international commercial arbitrations. The phrase refers to
arbitrations where at least one party is non-Indian. It does not refer to an
arbitration with its seat in an international location.

2. Omission
of the word only in S. 2(2)

As mentioned
earlier, the Model Law vide A. 1(2) states

The provisions of this Law, except articles
8, 9, 35 and 36, apply only if the place of arbitration is in the territory of
this State.

The territorial
criterion is set out therein.

S. 2(2) of the
A&C Act, 1996, provides the applicability of Part I of the said Act. It
states:

This
Part shall apply where the place of arbitration is in India.

The plank on
which the Bhatia decision revolved
was the omission of the word only from S. 2(2) of the A&C Act, 1996. It was
submitted that the Indian Legislature intentionally dropped the word only thereby indicating a departure from
the seat centric criterion.[3]

This submission
was accepted in Bhatia and partly
accepted in the case under review. The Supreme Court in the case under review
agreed that the omission of the word only
was intentional but disagreed that the same indicated a departure from the
seat centric approach.[4] The
Supreme Court agreed that it could not supply the word only as it was within the competence of the Legislature to do so. [5]
However the Supreme Court observed that the plain meaning [6]
of the words used in S. 2(2) indicated that the territorial approach was maintained
by the Indian Legislature. [7]

The Supreme
Court reasoned that[8]it was felt necessary to include the word
“only” in order to clarify that except for Articles 8, 9, 35 & 36 which
could have extra territorial effect if so legislated by the State, the other
provisions would be applicable on a strict territorial basis. Therefore, the
word “only” would have been necessary in case the provisions with regard to
interim relief etc. were to be retained in Section 2(2) which could have
extraterritorial application. The Indian legislature, while adopting the Model
Law, with some variations, did not include the exceptions mentioned in Article
1(2) in the corresponding provision Section 2(2). Therefore, the word “only”
would have been superfluous as none of the exceptions were included in Section
2(2). The Supreme Court went on to hold that “The absence of the word “only” which is found in Article 1(2) of the
Model Law, from Section 2(2) of the Arbitration Act, 1996 does not change the
content/import of Section 2(2) as limiting the application of Part I of the
Arbitration Act, 1996 to arbitrations where the place/seat is in India.”[9]
This approach of the Supreme Court is innovative. Furthermore the emphasis of
interpreting the A&C Act, 1996 along the lines of Model Law can only bode
well for Indian arbitration law.

The Supreme
Court also observed that the omission of the word only could be found in other legislations such as the Swiss Private
International Law Act, 1987 and the Arbitration and Conciliation Act, 1996, UK.
Despite the omission the Supreme Court pointed out that the territorial
principle was not cast out in these countries.

An interesting
submission was made that S. 2(2) would not be necessary if it were stating the
obvious, i.e. Part I shall apply to arbitrations taking place in India. The
Supreme Court dealt with the same stating that the necessity of S. 2(2) was to
ensure that the applicability of the Part I was limited to arbitration taking
place in India, especially given that the A&C Act, 1996 consolidates three
older legislations dealing with domestic arbitrations and relating to
arbitrations taking place abroad. The Supreme Court held that if it were
interpreted that Part I shall apply to all arbitrations irrespective of situs,
then it would amount to adding words to S. 2(2).[10]

3. Submission
on S. 2(2) and its relation to S. 2(4) and 2(5)

S. 2(2) reads as
under:

This Part shall apply where the place of
arbitration is in India.

S. 2(4) reads as
under:

This Part... shall apply to every
arbitration under any other enactment...except in so far as the provisions of
this Part are inconsistent with that other enactment or with any rules made
thereunder.

S. 2(5) reads as
under:

Subject to the provisions of subsection (4)
and save in so far as is otherwise provided by any law...or in any agreement in
force between India and any other country...this Part shall apply to all arbitrations
and to all proceedings relating thereto.

It was submitted
that S. 2(2) could not be interpreted to limit Part I to arbitrations taking
place in India as the words every
arbitration in S. 2(4) and all
arbitrations in S. 2(5) indicated the applicability of the A&C Act 1996
to all arbitrations irrespective of the situs. The Supreme Court rejected this
submission on the ground that S. 2(4) and S. 2(5) were subject to S. 2(2) and
would apply to every arbitration and all arbitrations taking place in India.
This reasoning seems in line with the principle of interpretation that a
statute must be read as a whole.

4. The
need (or lack thereof) for defining a domestic award

S. 2(7) defines
a domestic award as an award made under Part I. It was submitted successfully
in the Bhatia case that the need for
defining the domestic award existed as the A&C Act could be applied to
arbitrations taking place outside India, the resulting award from which would then
be deemed to be a domestic award. It was thus submitted that the A&C Act,
1996 was not seat centric in its approach. The Supreme Court was not swayed by
the attractive argument in the case under review. The Supreme Court held that
the position under S. 9B the Foreign Awards (Recognition and Enforcement) Act, 1961
wherein the Legislature recognized the possibility of extra-territorial
operation of Indian arbitration laws [11],
was deliberately omitted. Thus S. 2(7) could not be interpreted in the manner
suggested in the Bhatia decision.

The Supreme
Court observed that the need for defining domestic award arose to distinguish
it from a foreign award. A foreign award as defined in S. 44 and 53 is defined
with respect to the country where it is made. Thus a domestic award in contrast
would mean an award made in India irrespective of whether one of or both the
parties involved are non-Indian.[12]

5. The
definition of Court

S.2(1)(e)
defines Court to mean the court...having
jurisdiction to decide the questions forming subject matter of the arbitration
if the same had been subject matter of a suit..

It was canvassed
before the Supreme Court that words subject
matter indicated that the A&C Act, 1996 was oriented towards subject
matter rather than seat of arbitration. The Supreme Court held that the
definition could not be interpreted in support of the submission so made. The
Supreme Court observed that the provision was only to identify which courts in
India would have supervisory control over the arbitration [13]
The Supreme Court clarified that the Legislature by using such wording had
intended to clarify that in determination of which court would have
jurisdiction over arbitral proceedings, the similar principles would be used as
applied in a civil matter. This seems to be a correct point of view in our
opinion.

6. Party
Autonomy as to Seat

It was submitted
that under S. 20 of the A&C Act, 1996 the parties are free to agree on the
place of arbitration and hence the A&C Act, 1996 places no importance on
the seat and would thus apply even if the seat were outside India. The Supreme
Court rejected the submission stating that S. 20 was subject to S. 2(2) and
hence parties were free to agree on the seat provided it was limited to within
India.[14]

Notably the
Supreme Court went on to distinguish between a seat and venue of arbitration. In
the process the Supreme Court remarked upon arbitration clauses which specify a
location outside India as either venue
or seat and also make the A&C
Act, 1996 applicable to the proceedings. The Supreme Court held that depending
upon the construction of the words, either of the results would ensue:

-The location would be deemed to be a seat and
hence the A&C Act, 1996 would not ordinarily be applicable. In such case
the A&C Act, 1996 would only be applicable if the lex fori of the country
where the seat is situated permitted the same. The Supreme Court remarked after
considering several judicial decisions[15]
of various jurisdictions that in such event it would only mean that the parties
have contractually imported from the A&C Act, 1996, those provisions which
are concerned with the internal conduct of their arbitration and which are not
inconsistent with the mandatory provisions of the law of the country of the
seat.[16]
This in our opinion seems to resolve quite well the theoretical possibility of
two parties agreeing to arbitration with its seat in X country and subjected to
the procedural laws of Y country, in which case a conflict of laws would ensue
in a similar result.

-The location would be deemed to be a venue. In
such case the seat would be found to be within India and hence the A&C Act,
1996 would be applicable.

In our next post we shall continue with our analysis of the above decision.

[1]India is a quasi federal
country which is divided into several states which include Jammu and Kashmir

[2]Article 370 of the
Constitution of India requires the Union Government to consult with the
Government of the State of Jammu and Kashmir before promulgating certain laws
for Jammu and Kashmir. However in certain cases the Union Government can
legislate for the State of Jammu and Kashmir without such prior consultation.

[7]
Paragraph 95 of the decision: “In view of the expression used in Section 2(2),
the maxim expressum facit cessare tacitum, would not permit by
interpretation to hold that Part I would also apply to arbitrations held
outside the territory of India. The expression “this Part shall apply where
the place of arbitration is in India” necessarily excludes application of
Part I to arbitration seated or held outside India.”; Similar view can be found
in Shreejee Traco (I) P Ltd v. Paperline
International Inc. (2003) 9 SCC 79 which was decided by the Supreme Court.
Interestingly this decision was passed by the Supreme Court oblivious of the Bhatia decision as the two were
contemporaneous.

[8]Paragraph 68 of the decision

[9]Paragraph 75 of the decision

[10]Paragraph 80 of the decision

[11]S. 9B stated that the Foreign
Awards (Recognition and Enforcement) Act, 1961 would not apply to awards made
on an arbitration agreement governed by the law of India.

[12]
Paragraph 88 of the decision: Therefore,
it seems clear that the object of Section 2(7) is to distinguish the domestic
award covered under Part I of the Arbitration Act, 1996 from the “foreign award” covered under Part II of the aforesaid Act; and not to distinguish the “domestic award” from an “international award” rendered in
India.; Paragraph 94 of the decision: It
appears to us that provision in Section 2(7) was also necessary to foreclose a
rare but possible scenario (as canvassed by Mr. Gopal Subramanium) where two
foreigners who arbitrate in India, but under a Foreign Arbitration Act, could
claim that the resulting award would be a “nondomestic” award.

About the Author

Alok N. Jain is a graduate in law from ILS Law College Pune, India. He has worked alongside Mr. Hiroo Advani (Advani and Co.) and Mr. Vikram S. Nankani (Economic Laws Practice) in several domestic and international commercial arbitrations. He is currently an entrepreneur working in association with Economic Laws Practice, India.